The Four Big Strategic Issues in Competing Multinationally

1
The Four Big Strategic Issuesin Competing
Multinationally

• Whether to customize a companys offerings in
  each different country market to match
  preferences of local buyers or offer a mostly
  standardized product worldwide
• Whether to employ essentially the same basic
  competitive strategy in all countries or modify
  the strategy country by country
• Where to locate a companys production
  facilities,distribution centers, and customer
  service operationsto realize the greatest
  locational advantages
• How to efficiently transfer a companys resource
  strengths and capabilities from one country to
  another to secure competitive advantage

2
Why Do Companies Expandinto Foreign Markets?
3
International vs. Global Competition
4
Cross-Country Differences in Cultural,
Demographic, and Market Conditions

• Cultures and lifestyles differ among countries
• Differences in market demographics and income
  levels
• Variations in manufacturing and distribution
  costs
• Fluctuating exchange rates
• Differences in host government economic and
  political demands

5
How Markets Differ from Country to Country

• Consumer tastes and preferences
• Consumer buying habits
• Market size and growth potential
• Distribution channels
• Driving forces
• Competitive pressures

6
Different Countries HaveDifferent Locational
Appeal

• Manufacturing costs vary from country to country
  based on
• Wage rates
• Worker productivity
• Inflation rates
• Energy costs
• Tax rates
• Government regulations
• Quality of business environment varies from
  country to country
• Suppliers, trade associations, and makers of
  complementary products often find it advantageous
  to cluster their operations in the same general
  location

7
Fluctuating Exchange Rates Affect a
Companys Competitiveness

• Currency exchange rates are unpredictable
• Competitiveness of a companys operations partly
  depends on whether exchange rate changes affect
  costs favorably or unfavorably
• Lessons of fluctuating exchange rates
• Exporters always gain in competitiveness when the
  currency of the country where goods are
  manufactured grows weaker
• Exporters are disadvantaged when the currency of
  the country where goods are manufactured grows
  stronger

8
Differences in HostGovernment Trade Policies

• Local content requirements
• Restrictions on exports
• Regulations on prices of imports
• Import tariffs or quotas
• Other regulations
• Technical standards
• Product certification
• Prior approval of capital spending projects
• Withdrawal of funds from country
• Ownership (minority or majority) by local citizens

9
Two Primary Patternsof International
Competition
10
Characteristics ofMulti-Country Competition

• Market contest among rivals in one country not
  closely connected to market contests in other
  countries
• Buyers in different countries are attracted to
  different product attributes
• Sellers vary from country to country
• Industry conditions and competitive forces
  ineach national market differ in important
  respects

11
Characteristics of Global Competition

• Competitive conditions acrosscountry markets are
  strongly linked
• Many of same rivals compete in many of the same
  country markets
• A true international market exists
• A firms competitive position in one country is
  affected by its position in other countries
• Competitive advantage is based on a firms
  world-wide operations and overall global standing

12
Strategy Options for Competing in Foreign
Markets

• Exporting
• Licensing
• Franchising strategy
• Multi-country strategy
• Global strategy
• Strategic alliances or joint ventures

13
Export Strategies

• Involve using domestic plants as a production
  base for exporting to foreign markets
• Excellent initial strategy to pursue
  international sales
• Advantages
• Conservative way to test international waters
• Minimizes both risk and capital requirements
• Minimizes direct investments in foreign countries
• An export strategy is vulnerable when
• Manufacturing costs in home country are
  higherthan in foreign countries where rivals
  have plants
• High shipping costs are involved
• Adverse fluctuations in currency exchange rates

14
Licensing Strategies

• Licensing makes sense when a firm
• Has valuable technical know-how or a patented
  product but does not have international
  capabilities to enter foreign markets
• Desires to avoid risks of committing resources to
  markets which are
• Unfamiliar
• Politically volatile
• Economically unstable
• Disadvantage
• Risk of providing valuable technical know-how to
  foreign firms and losing some control over its use

15
Franchising Strategies

• Often is better suited to global expansion
  effortsof service and retailing enterprises
• Advantages
• Franchisee bears most of costs and risks of
  establishing foreign locations
• Franchisor has to expend only the resources to
  recruit, train, and support franchisees
• Disadvantage
• Maintaining cross-country quality control

16
Localized Multicountry Strategiesor a Global
Strategy?

• Whether to vary a companys competitive approach
  to fit specific market conditions and buyer
  preferences in each host county
• OR
• Whether to employ essentially the same strategy
  in all countries

Strategic Issue
17
Characteristics of a Think-Local,Act-Local
Approach to Strategy Making

• Business approaches are deliberately crafted to
• Accommodate differing tastes and expectations of
  buyers in each country
• Stake out the most attractive market positions
  vis-à-vis local competitors
• Local managers are given considerablestrategy-mak
  ing latitude
• Plants produce different products for different
  local markets
• Marketing and distribution are adapted to fit
  local customs and cultures

18
When Is a Think-Local, Act-LocalApproach
to Strategy Making Necessary?

• Significant country-to-country differences
  incustomer preferences and buying habits exist
• Host governments enact regulations requiring
  products sold locally meet strict manufacturing
  specifications or performance standards
• Trade restrictions of host governments are so
  diverse and complicated they preclude a uniform,
  coordinated worldwide market approach

19
Drawbacks of a Think-Local,Act-Local
Approach to Strategy Making
Poses problems of transferring competencies
across borders
Works against building aunified competitive
advantage
20
Characteristics of a Think-Global,Act-Global
Approach to Strategy Making

• Same products under the same brand names are sold
  everywhere
• Same distribution channels are used in all
  countries
• Competition is based on the same capabilities and
  marketing approaches worldwide
• Strategic moves are integrated and coordinated
  worldwide
• Expansion occurs in most nations where
  significant buyer demand exists
• Strategic emphasis is placed on building a global
  brand name
• Opportunities to transfer ideas, new products,
  and capabilities from one country to another are
  aggressively pursued

21
What Is a Think-Global, Act-Local Approach
to Strategy Making?

• A company uses the same basiccompetitive theme
  in each country but allows local managers
  latitude to . . .
• Incorporate whatever country-specific variations
  in product attributes are needed to best satisfy
  local buyers and
• Make whatever adjustments in production,
  distribution, and marketing are needed to compete
  under local market conditions

22
The Quest for CompetitiveAdvantage in
Foreign Markets

• Three ways to gain competitive advantage
• 1. Locating activities among nations in ways
  that lowercosts or achieve greater product
  differentiation
• 2. Efficient/effective transfer of
  competitivelyvaluable competencies and
  capabilities fromcompany operations in one
  country to company operations in another country
• 3. Coordinating dispersed activities in ways a
  domestic-only competitor cannot

23
Locating Activities to Build aGlobal
Competitive Advantage

• Two issues
• Whether to
• Concentrate each activity in a few countries or
• Disperse activities to many different nations
• Where to locate activities
• Which country is best location for which activity?

24
Concentrating Activities to Builda Global
Competitive Advantage

• Activities should be concentrated when
• Costs of manufacturing or other value chain
  activities are meaningfully lower in certain
  locations than in others
• There are sizable scale economies in performing
  the activity
• There is a steep learning curve associated with
  performing an activity in a single location
• Certain locations have
• Superior resources
• Allow better coordination of related activities
  or
• Offer other valuable advantages

25
Dispersing Activities to Build aGlobal
Competitive Advantage

• Activities should be dispersed when
• They need to be performed close to buyers
• Transportation costs, scale diseconomies, or
  trade barriers make centralization expensive
• Buffers for fluctuating exchange rates, supply
  interruptions, and adverse politics are needed

26
Transferring Valuable Competencies to Build
a Global Competitive Advantage

• Transferring competencies, capabilities, and
  resource strengths across borders contributes to
• Development of broader competencies and
  capabilities
• Achievement of dominating depth in some
  competitively valuable area
• Dominating depth in a competitively valuable
  capability is a strong basis for sustainable
  competitive advantage over
• Other multinational or global competitors and
• Small domestic competitors in host countries

27
Coordinating Cross-Border Activities to Build
a Global Competitive Advantage

• Aligning activities located in different
  countries contributes to competitive advantage in
  several ways
• Choose where and how to challenge rivals
• Shift production from one location to another to
  take advantage of most favorable cost or trade
  conditions or exchange rates
• Use online systems to collect ideas for new or
  improved products and to determine which products
  should be standardized or customized
• Enhance brand reputation by incorporating same
  differentiating attributes in its products in all
  markets where it competes

28
What Are Profit Sanctuaries?

• Profit sanctuaries are country markets where a
  firm
• Has a strong, protected market position and
• Derives substantial profits
• Generally, a firms most strategically crucial
  profit sanctuary is its home market

29
What Is Cross-Market Subsidization?

• Involves supporting competitive offensives in one
  market with resources/profits diverted from
  operations in other markets
• Competitive power of cross-market subsidization
  results from a global firms ability to
• Draw upon its resources and profits in other
  country markets to mount an attack on
  single-market or one-country rivals and
• Try to lure away their customers with
• Lower prices
• Discount promotions
• Heavy advertising
• Other offensive tactics

30
Achieving GlobalCompetitiveness via
Cooperation

• Cooperative agreements with foreign companies are
  a means to
• Enter a foreign market or
• Strengthen a firms competitiveness in world
  markets
• Purpose of alliances
• Joint research efforts
• Technology-sharing
• Joint use of production or distribution
  facilities
• Marketing / promoting one anothers products

31
Strategic Appeal of Strategic Alliances

• Gain better access to attractive country markets
  from host countrys government to import and
  market products locally
• Capture economies of scale in production and/or
  marketing
• Fill gaps in technical expertise or knowledge of
  local markets
• Share distribution facilities and dealer networks
• Direct combined competitive energies toward
  defeating mutual rivals
• Take advantage of partners local market
  knowledge and working relationships with key
  government officials in host country
• Useful way to gain agreement on important
  technical standards

32
Pitfalls of Strategic Alliances

• Overcoming language and cultural barriers
• Dealing with diverse or conflicting operating
  practices
• Time consuming for managers in terms of
  communication, trust-building, and coordination
  costs
• Mistrust when collaborating in competitively
  sensitive areas
• Clash of egos and company cultures
• Dealing with conflicting objectives, strategies,
  corporate values, and ethical standards
• Becoming too dependent on another firm for
  essential expertise over the long-term